WAGE & HOUR BOOT CAMP - FLSA EXEMPTIONS...WAGE & HOUR BOOT CAMP ... supervisor made all the decisions regarding which candidates to forward to the company’s clients, the court said

© 2011 Proskauer Rose LLP

AMERICAN BAR ASSOCIATION LABOR AND EMPLOYMENT LAW SECTION

FIFTH ANNUAL CLE CONFERENCE SEATTLE, WA

NOVEMBER 2-5, 2011

WAGE & HOUR BOOT CAMP FLSA EXEMPTIONS

PRESENTED BY:1

FREDRIC C. LEFFLER, ESQ. PROSKAUER ROSE LLP

1 With the assistance of Nausheen Rokerya, Esq. and contributions by Caroline Dellatore, Esq. and Corinne Osborne, Esq. Ms. Rokerya and Ms. Dellatore are Associates in Proskauer’s Newark, New Jersey office and Ms. Osborne is an Associate in Proskauer’s New York City office. Fred Leffler is Senior Counsel and Co-Chair of Proskauer’s Employment Law Counseling and Training Practice Group, and is resident in the firm’s New York City office.


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TABLE OF CONTENTS

Page

I. THE FLSA GENERALLY ..................................................................................................1

A. What it means to be “exempt” .................................................................................1

B. 2004 Amendments to FLSA Regulations ................................................................1

C. Exemptions to be narrowly construed ......................................................................1

II. THE WHITE COLLAR EXEMPTION TESTS ..................................................................2

A. The White Collar Exemptions .................................................................................2

B. Test To Determine Exempt Employees ...................................................................2

C. Key Terms for the Standard Duties Test ..................................................................3

III. EXECUTIVE EMPLOYEES...............................................................................................5

A. Standard for Executive Employees ..........................................................................5

B. Management of The Enterprise, Department or Subdivision ..................................5

C. Customarily Recognized Department or Subdivision ..............................................6

D. Directs Two or More Other Employees ...................................................................6

E. Authority to Hire or Fire Other Employees .............................................................6

F. Concurrent Performance of Exempt and Non-Exempt Work ..................................7

G. Recent Litigation- Managers and Assistant Managers ............................................7

IV. ADMINISTRATIVE EMPLOYEES ...................................................................................9

A. Standard for Administrative Employees ..................................................................9

B. Directly Related To Management or General Business Operations ........................9

C. Discretion and Independent Judgment ...................................................................10

D. Matters of Significance ..........................................................................................11

E. Recent Litigation: Pharmaceutical Employees ......................................................11

F. Recent Litigation: Financial Services Employees .................................................13

G. Recent Litigation: Account Managers ...................................................................17

H. DOL Opinion Letter: IT Support Specialists .........................................................18

V. PROFESSIONAL EMPLOYEES ......................................................................................19

A. Standard for Professional Employees ....................................................................19

B. Learned Professionals ............................................................................................19

C. Creative Professionals ............................................................................................25


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VI. COMPUTER EMPLOYEES .............................................................................................26

A. Standard for Computer Employees ........................................................................26

B. Educational Requirements .....................................................................................27

C. Computer Manufacture and Repair ........................................................................27

D. Executive and Administrative Computer Employees ............................................27

E. Highly Compensated Test Does Not Apply To Computer Professionals ..............28

F. Information Technology (IT) Support Specialists Are Non-Exempt ....................28

VII. OUTSIDE SALES EMPLOYEES .....................................................................................28

A. Standard for Outside Sales Employee Exemption .................................................28

B. Primary Duty of Outside Salespersons ..................................................................29

C. Making Sales or Obtaining Orders ........................................................................29

D. Away From The Employer’s Place of Business ....................................................29

E. Promotion Work .....................................................................................................30

F. Drivers Who Deliver and Sell Products .................................................................31

G. Recent Litigation: Pharmaceutical Sales Representatives .....................................31

H. Registered Representatives ....................................................................................32

VIII. EXCEPTION FOR PUBLIC SAFETY EMPLOYEES .....................................................33

IX. RETAIL SERVICES/COMMISSIONED EMPLOYEE EXEMPTION ...........................34

A. Standard for Retail/Commissioned Employees .....................................................34

B. Retail and service establishments ..........................................................................34

C. Commissioned Employees .....................................................................................35

X. OTHER EXEMPTIONS ....................................................................................................37

A. Lesser Known Exemptions ....................................................................................37

XI. THE SALARY BASIS TEST ............................................................................................40

A. Generally ................................................................................................................40

B. Permissible Deductions ..........................................................................................41

C. Improper Deductions May Destroy Exempt Status ...............................................41

D. “Safe Harbor” Provision ........................................................................................43

E. Additional Payments Remain Permissible .............................................................43


ABA Labor & Employment Law Section Fifth Annual CLE Conference

Seattle, WA November 2-5, 2011

WAGE & HOUR BOOT CAMP FLSA EXEMPTIONS

I. THE FLSA GENERALLY

A. What it means to be “exempt”

1. The Fair Labor Standards Act (“FLSA” or “Act”), originally enacted in 1938, requires, among other things, employers engaged in interstate commerce to pay their non-exempt employees a minimum wage (currently under federal law set at $7.25 per hour) and to pay overtime for hours worked in excess of 40 per workweek, at a rate of one and one-half the employee’s “regular rate” of pay. 29 U.S.C. § 207(a) (2010).

2. The Act also provides for several “exemptions” from its coverage. As such, while covered non-exempt workers are entitled to overtime pay for hours worked in excess of 40 in a workweek, exempt workers are not eligible for overtime.

B. 2004 Amendments to FLSA Regulations

1. The United States Department of Labor (“DOL”) issued revised and updated regulations under the FLSA that took effect in August 2004. Most notably, these revisions eliminated the “long” and “short” test dichotomy utilized by the prior regulations for determining exempt status, replacing them with a “standard duties” test. Today, employees must earn at least $455 per week ($23,660 per year) in order to qualify for exempt status, with one or two exceptions.

2. The regulations clarified the duties required for each of the “white collar exemptions”- the Executive, Administrative, Professional, Computer Professional, and Outside Sales employee exemptions. 69 Fed. Reg. 22,122 – 22,274 (Apr. 23, 2004) (codified at 29 C.F.R. § 541 (2011)).

C. Exemptions to be narrowly construed

1. It is well settled law that the FLSA’s exemptions are to be “narrowly construed against the employers seeking to assert them.” Arnold v. Ben Kanowsky Inc., 361 U.S. 388, 392 (1960). Employers bear the burden of proving that employees fit “plainly and unmistakably” within the exemption’s terms. Ruggeri v. Boehringer Ingelheim Pharms Inc., 585 F. Supp. 2d 254, 261 (D. Conn. 2008) (quoting Bilyou v. Dutchess Beer Distribs., Inc., 300 F.3d 217, 222 (2d Cir. 2002). See also Baum v. Astrazeneca LP, 605 F. Supp. 2d 669, 674 (W.D. Pa. 2009) (citing

© 2011 Proskauer Rose LLP 2

Friedrich v. U.S. Computer Servs., 974 F.2d 409, 412 (3d Cir. 1992)), cert. denied, 131 S. Ct. 332 (2010).

II. THE WHITE COLLAR EXEMPTION TESTS

A. The White Collar Exemptions

1. The FLSA exempts from its overtime provisions a wide variety of employees, including certain farm workers, certain airline employees, and certain commissioned sales people. 29 U.S.C. § 213(a)(6), (a)(7), (b)(3) (2004). Among the most common exempt employees are the white-collar salaried exemptions – Executive, Administrative, Professional, Computer and Outside Sales employees.

2. In updating its regulations, DOL reiterated that the FLSA provides minimum standards. States may opt to exceed those standards, and employers must comply “with any Federal, State or municipal laws, regulations or ordinances establishing a higher minimum wage or lower maximum workweek. . . . .” Employers must also continue to abide by the contractual obligations of any collective bargaining agreements. 29 C.F.R. § 541.4 (2004).

B. Test To Determine Exempt Employees

1. For the Executive, Administrative and Professional exemptions, the regulations include a “standard duties test” and a minimum salary test. There is no minimum salary test for Outside Sales employees. Computer Professional employees (who meet the duties test) may be paid hourly, not less than $27.63 an hour, or on a salary or fee basis of not less than $455 weekly. There is now also a test for Highly Compensated Employees.

a. Standard Duties Test. A standard duties test applies to all employees who are paid between $455 per week ($23,660 annually) and $100,000 per year on a “salary basis”. 29 C.F.R. §§ 541.600(a), 541.601(a) (2011). Overtime is guaranteed for all employees earning less than $455 per week. 29 C.F.R. § 541.600(a) (2011).

b. Highly Compensated Employee Test. Employees with total annual compensation of at least $100,000.00 are exempt, if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an Executive, Administrative or Professional employee. 29 C.F.R. § 541.601 (2011).

i. “Total annual compensation” must include at least $455 per week, paid on a salary or fee basis; however, it may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation. 29 C.F.R. § 541.601(b)(1). It does not include board, lodging, life and/or medical insurance payments, retirement plan contributions, or the cost of fringe benefits. Id.


ii. The Highly Compensated Employee test only applies to employees whose primary duty is performing office or non-manual work. 29 C.F.R. § 541.601(d). This exemption does not apply to Computer Employees or Outside Sales Employees.

iii. A high compensation level is a strong indicator of an employee’s exempt status. 29 C.F.R. § 541.601(c). These employees need only customarily and regularly perform one (or more) of the exempt duties of an Executive, Administrative or Professional employee. Id. For example, an employee earning $120,000 annually who customarily and regularly directs the work of two or more employees will qualify as a Highly Compensated Employee.

(1) In Ogden v. CDI Corp., No. CV08-2180 PHX DGC, 2010 U.S. Dist. LEXIS 66686, *14 (D. Ariz. June 30, 2010), the Court denied summary judgment to the employer based on a finding that the plaintiff, a recruiter who made more than $100,000 per year, did not necessarily perform one or more of the duties of an Administrative employee customarily and regularly. Because the recruiter’s supervisor made all the decisions regarding which candidates to forward to the company’s clients, the court said his position was more akin to a non-exempt “personnel clerk who screens applicants.” Id.

iv. If an employee’s total annual compensation is not at least $100,000 by the last pay period of a 52-week period, the employer may make one final payment sufficient to achieve the required level during the last pay period or within one month after the end of the 52-week period. 29 C.F.R. § 541.601(b)(2).

v. Employees who do not work a full year for the employer may still qualify for the exemption if the employee receives a pro rata portion of the minimum salary amounts based on the number of weeks the employee worked. 29 C.F.R. § 541.601(b)(3).

C. Key Terms for the Standard Duties Test

1. The regulations use several key terms, which are defined in Subpart H, “Definitions and Miscellaneous Provisions.” 29 C.F.R. §§ 541.700 - 541.710 (2011).

2. Primary Duty

a. The standard duties test for each exemption requires that employers examine the primary duty, meaning: the principal, main, major or most important duty an employee performs to determine an employee’s classification status.


29 C.F.R. § 541.700(a). As stated in the Preamble,2 the major emphasis is placed on the character of the employee’s job as a whole. 69 Fed. Reg. 22,122 at 22,186 (Apr. 23, 2004).

b. Employees who spend less than 50% of their time performing exempt work can still satisfy the standard duties test for exemption provided other factors support their exempt status. However, the amount of time spent performing exempt work “can be a useful guide in determining whether exempt work is the primary duty of an employee.” 29 C.F.R. § 541.700(b). Thus, employees who spend the majority of their time performing exempt work, generally, meet the primary duty requirement.

c. Factors to consider when determining the primary duty include: 1) the relative importance of the exempt duties as compared with other types of duties; 2) the amount of time spent performing exempt work; 3) the employee’s relative freedom from direct supervision; and 4) the relationship between the employee’s salary and the wages paid to other employees for the same kind of non-exempt work. 29 C.F.R. § 541.700(a)-(c).

3. Customarily and Regularly

a. Greater than occasional frequency – generally, this means work normally and recurrently performed every week, but does not include isolated or one-time tasks. 29 C.F.R. § 541.701 (2011).

4. Directly and Closely Related

a. “Work that is ‘directly and closely related’ to the performance of exempt work is also considered exempt work.” 29 C.F.R. § 541.703(a) (2011). Work is directly and closely related if it contributes to or facilitates exempt work; even menial or manual tasks will be considered exempt work if an employee’s exempt work could not properly be performed without these tasks. For examples of work considered directly and closely related exempt work, see 29 C.F.R. § 541.703(b)(1)-(10).

5. Discretion and Independent Judgment

a. Exercising discretion and independent judgment implies that an employee has authority to make an independent choice without immediate direction or supervision. The regulations explain that employees can still exercise discretion and independent judgment even if a superior reviews their decisions or recommendations. The fact that an employee’s decisions may,

2 In addition to the regulations, the DOL also published in the Federal Register (from pages 22,122 through 22,191) a Preamble containing supplementary information about the new regulations, including a summary of major comments, a discussion of relevant federal case law, and further explanatory insights concerning each section and subpart. Throughout this outline, citations to the Preamble will be to the appropriate pages of the Federal Register.


occasionally, even be reversed does not mean that the employee is not exercising discretion and independent judgment. 29 C.F.R. § 541.202 (2011).

b. The Administrative exemption requires that an employee exercise discretion and independent judgment with respect to “matters of significance.” 29 C.F.R. § 541.202(a).

III. EXECUTIVE EMPLOYEES

A. Standard for Executive Employees

1. An Executive employee is one:

a. Who is compensated on a salary or fee basis at a rate of not less than $455 per week; and

b. Whose “primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof”;

c. “Who customarily and regularly directs the work of two or more other employees”; and

d. “Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.” 29 C.F.R. §§ 541.100(a)(1)-(4) (2011) (emphasis added).

2. Business owner: Salary requirements do not apply to business owners, which are defined as any employee “who owns at least a bona fide 20 - percent equity interest in the enterprise” and “who is actively engaged in its ‘management.’” 29 C.F.R. § 541.101 (2011).

B. Management of The Enterprise, Department or Subdivision

1. Management includes, but is not limited to: interviewing, selecting and training employees; setting and adjusting employee pay rates and work hours; directing employees’ work; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning work and determining the techniques to be used; apportioning work among employees determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; providing for the safety and security of employees or property; controlling the flow and distribution of materials, merchandise and supplies; planning and controlling the budget; and monitoring or implementing legal compliance measures. 29 C.F.R. §§ 541.102 (2011).


C. Customarily Recognized Department or Subdivision

1. The phrase “customarily recognized department or subdivision” distinguishes between employees who are intermittently assigned to a specific job or series of jobs and “a unit with permanent status and function.” 29 C.F.R. § 541.103(a) (2011).

2. A department or subdivision need not be physically within the employer’s establishment and can move from place to place. The key factor is whether the employee “is actually in charge of a recognized unit with a continuing function in the organization.” 29 C.F.R. § 541.103(a)-(d).

D. Directs Two or More Other Employees

1. Direction or supervision must occur customarily and regularly of “two or more other employees”, meaning two full-time employees or their equivalent.

2. Employees who assist the manager of a department and fill in for the manager as a supervisor only in his/her absence do not qualify for the exemption.

E. Authority to Hire or Fire Other Employees

1. This criterion is satisfied by an employee whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given “particular weight.”

a. Factors to consider in determining whether an employee’s suggestions and recommendations are given particular weight include, but are not limited to: 1) whether making such suggestions and recommendations are part of the employee’s duties; 2) the frequency with which the employee makes suggestions or recommendations; and 3) the frequency with which the employee’s suggestions are relied upon. 29 C.F.R. § 541.105 (2011).

b. In Vanstory-Frazier v. CHHS Hospital Co., Civ. No. 08-3910, 2010 U.S. Dist. LEXIS 387 (E.D. Pa. Jan. 4, 2010), the Court found that the plaintiff could not be considered exempt as an Executive employee because, although she had supervisory responsibility, she had no authority to hire or fire other employees, and there was no evidence that she made suggestions regarding any change in employee status that were given particular weight.

c. In Pressler v. FTS USA, LLC, 2010 WL 5105135 (Dec. 9, 2010), the Eastern District of Arkansas considered a quality control technician at a cable installation company for the Executive exemption. First, the Court found that Pressler’s primary duties were not in management, since he used a standard form to check the work of others. He also did not control the flow or distribution of materials in any way. Second, he did not direct the work of two or more individuals. Even when another technician failed an inspection,


by his own admission, the matter was “out of [his] hands” after he turned in his forms. Finally, plaintiff could not hire or fire the technicians. Indeed, the form did not even allow for suggestions or recommendations, and the record lacked any evidence that his recommendations were otherwise informally given weight. For a discussion of the Court’s Administrative exemption analysis in Pressler, see Section IV(C)(2)(b).

F. Concurrent Performance of Exempt and Non-Exempt Work

1. Concurrent performance of exempt and non-exempt work will not disqualify an employee from the Executive exemption if the employee otherwise meets the salary and duty requirements. 29 C.F.R. § 541.106 (2011).

2. Exempt employees, generally decide on their own initiative to perform non-exempt work and remain responsible for their business operations, whereas non-exempt employees generally perform exempt work only at the direction of a supervisor or for defined time periods. 29 C.F.R. § 541.106.

a. An assistant manager in a retail establishment who performs non-exempt work, such as cooking food, stocking shelves, cleaning, etc., will not lose the exemption if the assistant manager’s primary duty is management.

b. However, an employee who primarily performs non-exempt work but occasionally fills in as a relief manager will not become exempt as a result of those sporadic periods spent managing. 29 C.F.R. § 541.106(b)-(c).

G. Recent Litigation- Managers and Assistant Managers

1. In a non-precedential decision, Soehnle v. Hess Corp, (3d Cir. 2010), the Third Circuit found a Hess Corporation gas station manager exempt, even though she spent at least 85 percent of her time performing non-exempt duties such as manning a cash register. In support of its finding that management was the plaintiff’s primary duty, the Third Circuit noted that the plaintiff was accountable for the gas station’s profits or losses; that she was subject to minimal supervision but fully responsible for the supervision of several employees whom she hired, trained and fired; and that she earned 40% more than non-exempt hourly employees at the gas station. See also Wage & Hour Op. Letter, FLSA2006-29, 2006 WL 2792443 (Sept. 8, 2006) (duties such as printing the daily sales report in order to check inventory status and audit cash receipts, including delivering cash receipts to the bank, which only the manager can perform, are management functions for purposes of the primary duty test as these functions relate to the maintenance of production or sales records in order to provide for the security of the employer’s property.)

a. In stark contrast, in Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11th Cir. 2008), cert. denied, 130 S. Ct. 59 (2009), the Eleventh Circuit held that store managers who spent 80 to 90% of their time on non-exempt work - such as stocking shelves, unloading trucks, running cash registers and


cleaning their stores - did not qualify for the Executive exemption. The Eleventh Circuit held that spending only 10 to 20 percent of their time on managerial duties was "a far cry" from the FLSA regulations’ guidelines that exempt executives spend about 50 percent of their time on managerial tasks.

b. Illustrative of how fact sensitive such determinations can be, the Fourth Circuit in Family Dollar FLSA Litigation, 637 F.3d 508 (4th Cir. 2011) (J. Niemeyer), held that a store manager who claimed that she spent 99 percent of her time on non-executive duties was nonetheless found to have sole management responsibility for the retail store, and therefore fell clearly within the parameters of the Executive exemption.3

2. In Gellhaus v. Wal-Mart Stores, Inc., 769 F. Supp. 2d 1071 (E.D. Tex. 2011), the Court considered the Executive exemption as it applied to an assistant manager at Walmart. While the plaintiff testified to interviewing and hiring employees, and conducting “employee coaching,”(akin to performance reviews), she also spent much time stocking shelves and unloading inventory. Nevertheless, the Court found that her primary duty consisted of managerial activities including overseeing and directing her subordinates, participating in annual employee reviews, managing inventory and determining how to stock and display merchandise, authorizing or denying refunds, and conducting price adjustments. Moreover, the store supervisor testified at deposition that many of plaintiff’s suggestions with respect to hiring and changes in employee status were implemented. Furthermore, plaintiff was responsible for disciplining employees under her supervision and these admonitions could result in a termination. Finally, because the employee regularly managed at least two employees and met the salary basis requirement, the Court concluded that she qualified for the Executive exemption, and granted Walmart’s motion for summary judgment.

3. In Buechler v. DavCo Restaurants, Inc., No. WDQ-09-0227, 2009 WL 3833999 (D. Md. Nov.16, 2009), the Court considered another assistant manager position, this one at a fast food restaurant An assistant manager at this restaurant typically “(1) trains, monitors, and enforces food safety procedures; (2) works with the management team to meet sales goals; (3) manages controllable expenses- e.g., food, labor, and paper costs; (4) monitors inventory, orders products, and executes company cash, property, product and equipment policies; (5) manages, directs, and monitors his crew to achieve quality, service, and cleanliness standards; (6) maximizes retention of crew and participates in recruitment by interviewing and recommending candidates; (7) provides training for crew members; (8) anticipates and identifies problems and takes corrective action; and (9) performs all other job-related duties.” Id. at *1. The plaintiff argued that while he interviewed and recommended candidates for employment, his suggestions were not given “particular weight” in that they were not relied upon. Plaintiff further alleged that he spent a significant amount of time on non-exempt work during each of his

3 The pre-2004 FLSA regulations applied in this case. However, because the revised regulations did not alter the substance of the exemption’s requirements, the holding remains authoritative.


shifts. While the Court did not dispute this fact, it noted that during his shifts, he was the only manager on duty and thus had the sole responsibility for the operation of the restaurant. As such, the Court found the assistant manager fell within the Executive exemption.

4. In Rodriguez v. Farm Stores Grocery, 518 F.3d 1259 (11th Cir. 2008), the Elventh Circuit rejected defendant’s contention that its store managers who had responsibility over its free-standing business locations were, as a matter of law, exempt under the Executive exemption. The grocery chain employed between three and six workers in each of its 103 stores. The chain gave the title “store manager” to one worker at each store and paid him or her a weekly salary and called the others “sales associates” and paid them hourly wages. The Court noted that managers spent about 30 percent of their time cleaning, 50 percent on customer attention or service, 10 percent on merchandise receiving, and another 10 percent in stacking racks. Several store managers testified that their stores were actually run by district managers. The Court stated that a jury could reasonably conclude from this that at least some of the store managers spent no time performing managerial duties during most weeks. Id. at 11. Further, the Court noted that “[w]hile other managers conceded that they spent some time each week performing managerial tasks, all of them insisted it was not the majority of their work.” Id. As such, the Court determined, a jury could reasonably conclude that plaintiff store managers were non-exempt employees.

IV. ADMINISTRATIVE EMPLOYEES

A. Standard for Administrative Employees

1. An Administrative employee is one:

a. Who is compensated on a salary or fee basis at a rate of not less than $455 per week;

b. Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or of the employer’s customers; and

c. Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. §§ 541.200(a)(2)-(3) (2011) (emphasis added).

B. Directly Related To Management or General Business Operations

1. An Administrative employee’s “primary duty must be the performance of work directly related to management or general business operations.” Such work is directly related to the running or servicing of the business, as opposed to “working on a manufacturing production line or selling a product in a retail or service establishment.” 29 C.F.R. § 541.201(a) (2011).


2. Functional areas that would be considered “directly related to management or general business operations” include, but are not limited to: “tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.” 29 C.F.R. § 541.201(b).

3. An employee’s work may also be directly related to the management or general business operations of the employer’s customers. Thus, employees acting as advisors or consultants to their employer’s clients or customers may be exempt. 29 C.F.R. § 541.201(c).

a. Production v. Staff Dichotomy: This dichotomy is useful in analyzing classification status, but the DOL regards it as only one analytical tool to be used in answering the ultimate question.

C. Discretion and Independent Judgment

1. “[T]he exercise of discretion and independent judgment . . . involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.” It implies “that the employee has authority to make an independent choice, free from immediate direction or supervision.” 29 C.F.R. § 541.202(a), (c) (2011).

2. The regulations clearly distinguish discretion and independent judgment from “the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources”. 29 C.F.R. § 541.202(e). Thus, performing mechanical, repetitive, recurrent, or routine work does not reflect the exercise of discretion and independent judgment.

a. Manuals. The use of manuals, guidelines or other established procedures containing or relating to highly technical, scientific, legal, financial, or other similarly complex matters that can be understood or interpreted only by employees with advanced or specialized knowledge or skill does not preclude exemption. The manuals or guidelines can provide guidance in addressing difficult or novel circumstances. However, employees who simply apply well-established techniques or procedures described in manuals or other sources within closely prescribed limits to determine the correct response to an inquiry or set of circumstances are likely not exempt. 29 C.F.R. § 541.704 (2011).

b. In Pressler v. FTS USA, LLC, 2010 WL 5105135 (Dec. 9, 2010), the Court found that plaintiff’s qualify-control work was non-manual and directly related to FTS’s cable-installation operations. However, Pressler’s evaluation of other technicians’ work using a standard form was ordinary inspection


work. The Court explained that since ordinary inspection work is usually performed along standardized lines involving well established techniques, it leaves inspectors very little leeway in the performance of their work. As such, the Court found that this position failed to meet the exemption’s criteria.

3. In order to determine whether an employee exercises “discretion and independent judgment”, the regulations list ten criteria, including whether the employee: 1) has authority to formulate, affect, interpret, or implement management policies or operating practices; 2) carries out major assignments in conducting the operations of the business; 3) performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; 4) has authority to commit the employer to matters that have significant financial impact; 5) has authority to waive or deviate from established policies and procedures without prior approval; 6) has authority to negotiate and bind the company on significant matters; 7) provides consultation or expert advice to management; 8) is involved in planning long- or short-term business objectives; 9) investigates and resolves matters of significance on behalf of management; and 10) represents the company in handling complaints, arbitrating disputes, or resolving grievances. 29 C.F.R. §541.202(b). In the Preamble to the final regulations, the DOL explains that employees who satisfy at least two or three of the factors generally exercise discretion and judgment, although a case-by-case analysis is required. 69 Fed. Reg. 22,122 at 22,144.

D. Matters of Significance

1. Refers to the level of importance or consequence of the work being performed. 29 C.F.R. § 541.202(a). The Administrative exemption is limited to persons who perform “work of substantial importance” to the management or operation of the business. 69 Fed. Reg. 22,122 at 22,143.

2. Whether an employee exercises discretion and independent judgment is not established merely because the employer will experience financial losses if the employee fails to perform the job properly. 29 C.F.R. § 541.202(f).

E. Recent Litigation: Pharmaceutical Employees

1. One of the most active areas of FLSA litigation over the last couple of years has involved pharmaceutical sales representatives. The issue with respect to these employees is usually whether or not they satisfy the “Outside Sales” employee exemption. However, many of the courts entertaining this question have also addressed the applicability of the Administrative exemption.

2. Earlier this year, the Supreme Court denied certiorari in In re Novartis Wage and Hour Litig., 611 F.3d 141 (2d Cir. 2010), cert. denied, 131 S. Ct. 1568 (2011). There, the Second Circuit held that highly compensated pharmaceutical sales representatives did not satisfy the requirements of the Administrative exemption,


primarily because they did not exercise sufficient discretion and independent judgment.

a. Novartis hired and trained Sales Reps to market and promote its prescription medications. This task entails visiting doctors’ offices to provide physicians with information about the benefits of Novartis’ products, and encouraging physicians to prescribe those medications to patients. The Sales Reps deliver a pre-approved “core message” about the drugs to each physician. According to the Second Circuit, the Sales Reps had no role in developing the “core message,” or in planning the marketing strategy, and were forbidden to answer any question for which there was no scripted response.

b. The Novartis Sales Reps did not actually sell any prescription medication to the doctors they visited, as such sales are prohibited by law. Instead, they actively promoted pharmaceuticals to physicians to prescribe and attempted to obtain “commitments” from the doctors to prescribe the medication when appropriate, which, in turn, then generates sales.

c. The Sales Reps control their daily schedules, checking in with their supervisor bi-weekly. Supervisors occasionally accompany them on physician visits to critique their performance. Sales Reps receive up to 25 percent of their compensation in the form of bonus or incentive payments but are generally paid a weekly salary and earn, on average, $91,539 per year. Notably, the district court did not consider the Highly Compensated Employee exemption, even though some Sales Reps are paid beyond the $100,000 annual threshold.

d. In addressing the Administrative exemption, the Court of Appeals scrutinized the USDOL’s interpretation of its regulations. The Court did not find any “evidence in the record that the Reps have any authority to formulate, affect, interpret, or implement Novartis’s management policies or its operating practices, or that they are involved in planning Novartis’s long-term or short-term business objectives . . . or that they have any authority to commit Novartis in matters that have significant financial impact.” Id. at 156. The Court also concluded that any independent judgment was “exercised within severe limits imposed by Novartis.” Id. at 157. The Court explained that “[w]hat Novartis characterizes as the Reps’ exercise of discretion and independent judgment . . . are skills gained and/or honed in their Novartis training sessions.” Id. at 156-57. Based on this analysis, the Court determined that the Administrative exemption did not apply.4

3. The Third Circuit reached a different conclusion in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010), where it held that a senior pharmaceutical sales representative was an Administrative employee exempt from overtime.

4 For a summary of the Court’s analysis of the Outside Sales exemption as applied to Novartis Sales Reps, see Section VII(G)(3)(a).


a. The plaintiff, who was unsupervised 95% of the time, was required to travel to various doctors’ offices and hospitals to discuss Johnson & Johnson’s pharmaceutical drugs to prescribing physicians. She was given a list of targeted physicians and expected to complete an average of ten visits per day. The Court concluded that the Administrative employee exemption applied because she executed nearly all of her duties without direct oversight and designed a strategic plan.

b. Her position required her to create a strategic plan designed to maximize sales in her territory, which guided the execution of her remaining duties. The court found that the strategic plan satisfied the “directly related to the management or general business operations of the employer” provision because it involved a high level of planning and foresight. In addition, she determined the frequency of visits to physicians. See also Jackson v. Alpharma, Inc., No. 07-3250, 2010 U.S. Dist. LEXIS 72435, at *14 (D.N.J. July 19, 2010); Baum v. AstraZeneca, 372 F. App’x 246, 249 (3d Cir.) (“Baum’s duties were very similar to the plaintiff’s duties in Smith . . . .”), cert. denied 131 S. Ct. 332 (2010).

4. Most recently, a federal district court in Florida granted summary judgment in favor of the plaintiff, a pharmaceutical sales representative, holding that she did not satisfy the Administrative exemption, and was therefore misclassified. Palacios v. Boehringer Ingelheim Pharms., Inc., No. 10-22398-Civ. UU, 2011 U.S. Dist. LEXIS 77804 (S.D. Fla. July 12, 2011). In reaching its conclusion, the Court relied on the illustrative examples of independent judgment and discretion set forth in the regulations at § 541.202(b). The Court considered that the plaintiff’s managers gave her a strict budget for each event, which she was not permitted to exceed. Also, plaintiff did not appear to be allowed to negotiate and bind the employer to any significant matters, or waive or deviate from established policies and procedures without its prior approval. Moreover, plaintiff’s ability to determine how best to engage physicians, develop a rapport with them, and address their questions and concerns about a particular product were all skills that plaintiff developed and honed through the employer’s training sessions. Finally, even though plaintiff had discretion in determining the order in which she would visit physicians, the employer determined which physicians she would visit, required her to visit every physician on its list, and mandated how many times she had to visit each physician in a six-month period. Id. at **24-25.

F. Recent Litigation: Financial Services Employees

1. Registered Representatives

a. Registered representatives are employees who typically pass a “Series 7” examination which is administered by the National Association of Securities Dealers (“NASD”) and covers topics including federal securities laws, economic theory, risk, corporate financing, accounting and balance sheet analysis, portfolio theory and analysis, fair sales practices, types of customer


accounts, and tax treatment of various investments. After an employee passes the Series 7 or comparable test, he/she may provide investment advice to the employing firm’s clients.

b. In a 2006 Opinion Letter, the Department of Labor considered whether certain “registered representatives” in the financial services industry qualify for the Administrative exemption. Wage & Hour Op. Letter, FLSA2006-43, 2006 WL 3832994 (Nov. 27, 2006). Finding in the affirmative, the DOL stressed that the applicability of the exemption does not refer to an occupational title but rather an individual employee’s duties and salary. See also 29 C.F.R. § 541.2 (2011). Specifically, the DOL stated that “registered representatives” likely satisfy the duties requirement of the Administrative exemption because they engage in promotion and business development activities, including the marketing, servicing, and promoting of the employing firm’s financial services and products, and by “making themselves visible to the appropriate segments of the public in order to meet and retain potential new clients for their employing firm.” See Hogan v. Allstate Ins. Co., 361 F.3d 621 (11th Cir. 2004). The DOL also stated that the primary duty of the “registered representatives” includes the exercise of discretion and independent judgment with respect to matters of significance, concluding that the test was met where the registered representative analyzed the client’s financial information, compared and evaluated investment options, and advised clients on the pros and cons of various investment opportunities. While the “registered representatives” engage in some sales activity, making sales is not their primary duty. The DOL made clear that if their “primary” duty was simply selling financial products, instead of assessing investment opportunities and recommending those deemed suitable based on the client’s financial status, objectives, tax exposure, etc., the representatives would not qualify as “exempt.”

c. One recent case analyzed the status of registered representatives under the Outside Sales exemption, finding the plaintiff exempt. Gold v. New York Life Ins., No. 09 Civ. 3210 (WHP), 2011 WL 2421281 (S.D.N.Y. May 19, 2011). While the Court held that the plaintiff was not entitled to overtime, it also noted that he did not qualify under the Administrative exemption. The Plaintiff referred to several DOL opinion letters discussing registered representatives in the context of the Administrative exemption but the Court was not persuaded. The Court dismissed the applicability of this exemption, stating that Gold’s duties did not involve any managerial or promotional responsibilities, which are typical indicators of work that is directly related to management or general business operations, as called for by the exemption’s standard. Id. at 11.5

5 For a complete discussion of the court’s analysis of the applicability of the Outside Sales exemption to registered representatives, see Section VII(H).


2. Mortgage Loan Officers

a. On March 24, 2010, in an Administrator Interpretation Letter (“AI”), the Wage and Hour Division of the DOL announced that, based on their typical job duties, mortgage loan officers do not qualify as bona fide Administrative employees under section 13(a)(1) of the FLSA. In reversing its prior stance on the issue, the DOL withdrew two opinion letters issued on September 8, 2006 and February 16, 2001, in which it previously had found that mortgage loan officers were exempt Administrative employees.

b. In Administrator’s Interpretation No. 2010-1, the DOL focused on the “production versus administrative” dichotomy in determining that mortgage loan officers are production workers whose primary duty is making sales, as opposed to administrative workers whose work is directly related to the management or general business operations of their employer or their employer’s customers. See 29 C.F.R. § 541.200.

c. The DOL relied on the following factors in reaching its conclusion:

i. The primary job duties of typical mortgage loan officers – include collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer, and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made – constitute the production work of an employer engaged in selling or brokering mortgage loan products; rather than work servicing the business operation itself;

ii. Mortgage loan officers are paid primarily by commissions;

iii. Employers often train their mortgage loan officers in sales techniques and evaluate their performance on the basis of their sales volume;

iv. Many employers defend against FLSA lawsuits brought by mortgage loan officers by arguing that they are exempt as Outside Sales employees, thus conceding that their primary duty is sales; and

v. Courts have repeatedly held that mortgage loan officers who work inside their employer’s place of business have a primary duty of sales.

d. The Mortgage Bankers’ Association recently filed suit seeking to vacate the above Administrator Interpretation. Complaint, Mortgage Bankers Ass’n v. Solis, No. 1:11-cv-00073-RBW, 2011 WL 202643 (D.D.C. Jan. 12, 2011). The complaint alleges that the AI violates section 702 of the Administrative Procedure Act (“APA”), 5 U.S.C. § 702 (1966). First, MBA alleges that the DOL’s abrupt reversal of its own longstanding interpretation violates the APA because the DOL failed to adhere to its own notice and comment rulemaking process. Second, MBA alleges that the AI itself is arbitrary and capricious,


since it conflicts with existing DOL regulations that have been afforded the force of law by courts. Based on these grounds, the MBA has asked the Court to vacate the AI, and set it aside in its entirety. In addition to its motion to vacate, the MBA has also moved for summary judgment, contending that there are no questions of fact requiring resolution in order to determine whether the AI is valid.

e. In Henry v. Quicken Loans, Inc., Case No. 2:04-cv-40346-SJM-MJH (E.D. Mich. March 17, 2011), a federal jury returned a unanimous verdict for the employer, finding its mortgage loan officers exempt, after several years of litigation. This verdict is significant as it reflects at least one jury’s view of the applicability of the Administrative exemption to loan officers. Notably, too, the jury disregarded the recent DOL Administrator Interpretation discussed above that provided, going forward, loan officers are probably best treated as non-exempt employees. In spite of this guidance, the jury decided that the Administrative exemption applied.

3. Loan Underwriters

a. Not long ago, JPMorgan Chase lost a case involving a home equity loan underwriter in Davis v. JPMorgan Chase & Co., 587 F.3d 529 (2d Cir. 2009), cert. denied, 130 S. Ct. 2416 (2010). As a loan underwriter, the employee’s job involved evaluating and ultimately approving or rejecting a loan request submitted by an applicant. This evaluation typically included verification of data provided by the applicant, running credit checks, and gathering other information on the applicant’s risk level. The issue ultimately turned on whether the employee’s primary duty involved day-to-day sales activities, or more substantial advisory duties. The latter category of duties would qualify the employee as exempt since it would include the determination of the overall course and policies of the business, and involve significant independent judgment and discretion. The Second Circuit found his job more akin to a sales position, since his primary responsibility was to sell loan products under the detailed directions of a credit guide. Plaintiff was not expected to advise customers in any way, and simply provided a yes or no decision to make with respect to loan applications. Thus, since the plaintiff was directly engaged in creating the goods, i.e. the loans, and selling those goods, his job was production-based rather than administrative. Id.

i. Earlier this year, JPMorgan proposed a $42 million dollar settlement for a national opt-in class of more than 3,000 individuals seeking unpaid overtime. The class includes nonsupervisory underwriters, credit analysts, and other positions whose main duties revolved around evaluating creditworthiness of loan applicants.


4. Financial Analysts

a. In Paul v. UPMC Health System, Civ. No. 06-1565, 2009 U.S. Dist. LEXIS 19277 (W.D. Pa. Mar. 10, 2009), plaintiff sued her former employer for unpaid overtime stemming from alleged misclassification. As a “financial analyst II”, her primary duties involved managing her office’s fiscal operations, including preparation of budgets and financial reports and preparing, auditing, and insuring compliance with contracts entered into by her employer’s main office with various local entities. She also prepared contract budgets, and had the authority to decide upon whether to include budget “cuts” proposed by her employer to save it money. The Court found plaintiff to be exempt, and characterized her primary responsibility as making key decisions with regard to her employer’s contracts. It found that “[s]uch responsibility falls within the functional areas of finance and budgeting, which the regulations specifically deem as having a direct relation to business operations.” Id. at 28. While the Court acknowledged that plaintiff's position may have largely involved the entry of data, she nevertheless had to exercise her own judgment in accomplishing that task. For example, in addition to her authority to approve proposed cuts, plaintiff also had the discretion to approve or disapprove purchases and expenditures within contractual and budgetary guidelines, even when her direct supervisor suggested otherwise.

b. In Zalewski v. PNC Fin. Servs. Grp., Inc., 555 F. Supp. 2d 555, 564 (W.D. Pa. 2007) a Pennsylvania district court affirmed a magistrate judge’s grant of summary judgment to PNC, finding that the employee, a self-described “accounting professional” and “financial analyst,” was properly classified as exempt. Plaintiff’s primary duties entailed compiling required reports for filings and audits, analyzing balance sheets and income statements, verifying financial reports/data, and monitoring tens of millions of dollars in investments for accuracy/compliance. Id. Plaintiff also described her job as one requiring the regular exercise of discretion/judgment, such as: "adjust[ing] allocation methodologies . . . to ensure fairness" and “comply[ing] with Corporate Standards,” "develop[ing] controls to verify accuracy of financial information" after uncovering errors, performing "thorough variance analysis of all accounts to be presented to upper management", interacting with risk managers and ensuring resolution of their issues/problems, and cross-training others. Id. at 565.

G. Recent Litigation: Account Managers

1. In Verkuilen v. Media Bank, LLC, No. 10-3009, 2011 WL 2084074 (7th Cir. May 27, 2011), the Seventh Circuit found that an account manager for a company that sold software to advertising agencies was exempt under the Administrative exemption. The employee “acted as a bridge between the software developers and the customers, helping to determine the customers’ needs, relaying those needs to the developers, and so assisting in the customization of the software, and finally helping the customers use the customized software.” Id. at *1. The Court


found that plaintiff’s primary duty was directly related to the general business operations of both her employer and its customers, albeit in a consultant-type role. Specifically, the Court noted the critical function played by the account manager as an “intermediary between employees of advertising agencies struggling to master complex software and the software developers at [employer].” Id. at *3. It also acknowledged that while plaintiff did not perform several of the other duties contained in the regulations, such as negotiate contracts, this was merely a function of the highly specialized tasks that she did perform. To be an effective account manager, plaintiff could not have been burdened with additional, unrelated tasks. As such, plaintiff’s duties fell within those contemplated by the exemption.

H. DOL Opinion Letter: IT Support Specialists

1. Pursuant to the regulations, the DOL found that while the upkeep of a computer system may be viewed as “essential” to an employer, the nature of the IT specialist’s work (not the results of performance) is the focus of the analysis for determining an employee’s exempt status under the Administrative exemption.6 Thus, to qualify, the work performed must itself relate to “significant matters in the management or general business operations of the employer.” Performing highly skilled technical work in troubleshooting computer problems does not independently meet this test. In other words, maintaining a computer system does not involve comparing courses of conduct, formulating management policies, negotiating for the company on significant matters, planning business objectives or any other exercise of discretion and independent judgment as set out by the regulations. Thus, because the IT specialist’s primary duty does not include exercising the type of discretion and independent judgment required for the Administrative exemption, they do not qualify.

a. For example, an IT Support Specialist whose duties included maintenance of a computer system and testing to ensure that a particular piece of equipment or application was working properly according to specifications designed by others was found to lack the required exercise of independent judgment and discretion to qualify for this exemption.

b. See also Martin v. Ind. Mich. Power Co., 381 F.3d 574 (6th Cir. 2004) (technical computer employee not exempt because 1) plaintiff’s primary job duty, maintenance of computer systems, did not relate to the administrative operation of the business, and 2) plaintiff had no leverage to determine any aspect of the repair or maintenance process); Turner v. Human Genome Sci., Inc., 292 F. Supp. 2d 738 (D. Md. 2003) (denying employer’s motion for summary judgment stating that while “a problem in HGS's computer system resulting from a System Support Technician's failure to do his job properly could result in serious loss or consequences [this] is not enough to establish

6 IT specialists are also often classified as exempt under the Computer Employee exemption. For a detailed discussion of this exemption see Section VI(F).


that Plaintiffs’ work is of such substantial importance to the management or operation of the business that is can be said to be directly related to management policies or general business operations” (internal quotation marks omitted)); Bothell v. Phase Metrics Inc., 299 F.3d 1120 (9th Cir. 2002) (denying summary judgment to employer for employee responsible for customers’ IT operation in the face of issues of fact over the extent to which the employee was permitted to make decisions and importance of decisions over which he had control). But see, Bagwell v. Florida Broadband, LLC, 385 F. Supp. 2d 1316 (S.D. Fla. 2005) (finding that 1) employee whose primary duty was developing, improving, and maintaining the employer’s computer network so that it would function reliably was not engaged in production, but rather administrative work; 2) plaintiff’s role in advising management, planning, negotiating, promoting sales, and business research activities related to the administrative operations of the business in a substantially important way; and 3) plaintiff’s ability to recommend decisions that directly affected his employer’s operations and financial future satisfied the independent judgment and discretion prong of the exemption.)

V. PROFESSIONAL EMPLOYEES

A. Standard for Professional Employees

1. An exempt Professional employee is one:

a. Who is compensated on a salary or fee basis at a rate of not less than $455 per week;

b. Whose primary duty is the performance of work:

i. Requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or

ii. Requiring invention, imagination, originality or talent in a “recognized field of artistic or creative endeavor.” 29 C.F.R. § 541.300(a) (2011).

B. Learned Professionals

1. For inclusion in this exemption under § 541.301, the employee’s primary duty must be:

a. The performance of work requiring advanced knowledge;

b. In a field of science or learning; and

c. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. 29 C.F.R. § 541.301(a) (2011).


d. In Campbell v. PricewaterhouseCoopers, LLP, 642 F.3d 820 (9th Cir. 2011), over two thousand unlicensed junior accountants brought suit against their employer, arguing that they were misclassified as exempt and owed additional compensation for their overtime hours worked. The district court agreed, and held that unlicensed accountants could categorically never qualify under California’s Professional or Administrative exemptions. Analyzing the Professional exemption first, the district court held that these PwC employees were ineligible for the exemption as a matter of law, because they were not licensed Certified Public Accountants. As to the Administrative exemption, the district court held that, because the unlicensed accountants were required by law to work under the supervision of a licensed accountant, they could never meet the requirement that they work under only “general supervision” to be classified as an exempt Administrative employee.

i. The Ninth Circuit Court of Appeals reversed and remanded, explaining, that these accountants’ classification status “is intensely factual and is one for the jury ….” Warning of the potentially extreme implications of categorically excluding entire classes of employees from exemption, the Court, instead, held that each employee’s duties and responsibilities must be measured against California’s exemption requirements to determine whether any exemption applies;

ii. Starting with the Professional exemption, the Ninth Circuit undercut the district court’s reasoning as to why no unlicensed accountant could ever be found exempt. The district court read subsection (a) of California’s Professional exemption – which requires that the individual have obtained a license or certification from the State of California – to render subsection (b) superfluous. Subsection (b) states that an individual who is primarily engaged in an occupation commonly recognized as a learned or artistic profession is exempt. The Ninth Circuit instead read these two subsections as an either/or option, allowing for an employee without a license under subsection (a) to still meet the exemption if s/he met the various requirements for a “learned or artistic” professional under subsection (b). Because unlicensed accountants may perform duties that could be considered those of a “learned or artistic” professional, these PwC employees could not, categorically, be excluded from exempt status altogether;

iii. On the Administrative exemption question, the Ninth Circuit again disagreed with the district court’s analysis that, as a matter of law, unlicensed accountants could never meet the Administrative exemption because they always had to work under the supervision of a licensed accountant. In reversing, the Ninth Circuit explained that, “[w]hile we recognize Plaintiffs are on the low end of PwC’s hierarchy, we see no authority that would bar their audit work from meeting this test as a matter of law.” Instead, the Ninth Circuit held that the requisite analysis would need a factual inquiry into the employees’ daily work, and the decision


could not be reached on a job position-wide basis.7 On remand, the jury was instructed to consider whether the audit work performed by the junior accountants could be classified as work of “substantial importance” to the management of the clients’ operations.

2. Advanced Knowledge

a. “Work requiring advanced knowledge” is work which is “predominantly intellectual” and which requires the regular exercise of “discretion and judgment,” as distinguished from routine mental, manual, mechanical or physical work. “Advanced knowledge” cannot be attained at the high school level. 29 C.F.R. § 541.301(b).

b. In Pignataro v. Port Authority, 593 F.3d 265 (3d Cir. 2010), the Third Circuit affirmed the judgment of the district court in finding that helicopter pilots are not “professionals” under the FLSA regulations. The court found that being a helicopter pilot does not require advanced knowledge in a field of science or learning acquired by a long course of specialized intellectual instruction and study. Helicopter pilots’ flight certification does not require an advanced academic degree. Instead, they are highly trained technicians. The court also noted that “[l]ogging in-flight hours, in-flight instruction, and passing practical and written tests do not qualify as a ‘prolonged course of specialized intellectual instruction and study[,]’” as required by the regulations. Id. at 270 (citation omitted).

3. “Field of science or learning” includes but is not limited to “law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other similar occupations,” as distinguished from “mechanical arts” or “skilled trades” where the knowledge may be advanced, but is not a field of science or learning. 29 C.F.R. § 541.301(c).

a. In Young v. Cooper Cameron Corp., 586 F.3d 201 (2d Cir. 2009), the court found that a product design specialist who worked on hydraulic power units for the oil and gas industry was non-exempt even though he had over twenty years of experience in engineering positions. The employee, who did not have a college degree, was the principal in charge of drafting certain types of hydraulic power units. The court analyzed whether the knowledge required to perform the job was customarily acquired by a prolonged course of specialized intellectual instruction and study. Id. In clarifying its interpretation of the regulations, the court explained that an exempt professional can include the occasional person who did not complete formal education to be placed in a profession that ordinarily requires a formal

7 It should be noted that California law, which governs the state law analysis, utilizes a quantitative standard whereby an employee must spend more than 50 percent of his or her work time engaged in exempt activity in order to be exempt from receiving overtime pay.


education. But, just because a job requires some advanced skills does not make the employee in the job a Professional for classification purposes. The court stated, “an employee is not an exempt Professional unless his work requires knowledge that is customarily acquired after a prolonged course of specialized, intellectual instruction and study.” Id. at 206.

4. Customarily Acquired by a Prolonged Course of Specialized Intellectual Instruction

a. The Professional exemption is limited to professions where specialized academic training is a standard prerequisite for entrance into the profession.

b. Nonetheless, the exemption is available to employees in professions who have substantially the same knowledge and perform substantially the same work as those with degrees, but who attained their advanced knowledge “through a combination of work experience and intellectual instruction.” 29 C.F.R. § 541.301(d). As a result, the learned Professional exemption could be available for: (i) the occasional lawyer who has not gone to law school; (ii) the occasional chemist who does not have a degree in chemistry; and (iii) some employees with extensive experience obtained while in the military service.

c. The exemption is not available for occupations that customarily may be performed with only the general knowledge acquired by an academic degree in any field, with knowledge acquired through an apprenticeship, or with training in the performance of routine mental, manual, mechanical or physical processes. 29 C.F.R. § 541.301(d).

d. An illustrative analysis of this exemption’s criteria may be found in Chatfield v. Children’s Services, Inc., 555 F.Supp.2d 532 (E.D. Pa. 2008). Plaintiff, a Truancy Prevention Case Manager for a social service agency providing child welfare programs, alleged that he did not qualify for the exemption and was overtime-eligible. On the issue of discretion and independent judgment, the court found that plaintiff’s assessment of whether truancy was occurring required regular use of plaintiff’s own discretion. Furthermore, such discretion was used in providing recommendations regarding treatment to the child’s family. The fact that plaintiff was supervised did not take undermine this conclusion, since plaintiff’s own judgment calls were still followed nearly 90 percent of the time. Next, the court turned to the DOL’s November 2005 opinion letter finding that social work requires advanced knowledge in a field of science or learning, thus satisfying the second prong of the exemption. See Wage & Hour Op. Letter, Nov. 4, 2005. Finally, the court turned to the specialized intellectual instruction requirement. Here, the court first noted that Chatfield had a bachelor’s degree with a major in psychology and minor in sociology, in addition to over three years experience in social welfare. The court then considered several other cases where an unrelated degree, or even no degree, did not bar an employee from qualifying for the exemption where other instructive options existed, such as a substantial amount of experience in


the relevant field. “By requiring a bachelor’s degree in social work, human services, or a related field along with three years of work experience providing community-based social support, [defendant] has established the necessary demands to satisfy the educational prong for Professional exemption.” Id. at 537.

5. Learned professionals may include:

a. Registered Nurses: (See 29 C.F.R. § 541.301(e)(2), explaining that “[r]egistered nurses who are registered by the appropriate State examining board generally meet the duties requirements for the learned Professional exemption.”)

b. Dental Hygienists: (See 29 C.F.R. § 541.301(e)(3), stating that “[d]ental hygienists who have successfully completed four academic years of pre-professional and professional study in an accredited college or university approved by the Commission on Accreditation of Dental and Dental Auxiliary Educational Programs of the American Dental Association generally meet the duties requirements for the learned Professional exemption.”)

c. Accountants: (See 29 C.F.R. § 541.301(e)(5), stating that “[c]ertified public accountants generally meet the duties requirements for the learned Professional exemption”, and that “many other accountants who are not certified public accountants but perform similar job duties may qualify as exempt learned professionals”, while distinguishing such individuals from “accounting clerks, bookkeepers and other employees who normally perform a great deal of routine work”, who will generally not qualify as exempt professionals).

d. Chefs: (See 29 C.F.R. § 541.301(e)(6), noting that “[c]hefs, such as executive chefs and sous chefs, who have attained a four-year specialized academic degree in a culinary arts program, generally meet the duties requirements for the learned Professional exemption… [and that the exemption is] not available to cooks who perform predominantly routine mental, manual, mechanical or physical work.”)

e. Athletic Trainers: (See 29 C.F.R. § 541.301(e)(9), explaining that “[a]thletic trainers who have successfully completed four academic years of pre-professional and professional study in a specialized curriculum accredited by the Commission on Accreditation of Allied Health Education Programs and who are certified by the Board of Certification of the National Athletic Trainers Association Board of Certification generally meet the duties requirements for the learned Professional exemption.”)

f. Funeral Directors and Licensed Embalmers: (See 29 C.F.R. § 541.301(e)(9), stating that “[l]icensed funeral directors and embalmers who are licensed by and working in a state that requires successful completion of four academic


years of pre-professional and professional study, including graduation from a college of mortuary science accredited by the American Board of Funeral Service Education, generally meet the duties requirements for the learned Professional exemption.”)

g. Paralegals with advanced specialized degrees: (See Wage & Hour Op. Letter, FLSA2005-9, 2005 WL 330608 (Jan. 7, 2005) and Wage & Hour Op. Letter, FLSA2005-54, 2005 WL 3638473 (Dec. 16, 2005) (both stating that since an advanced specialized degree is not a standard prerequisite for entry into the paralegal field, most paralegals and legal assistants will generally not qualify for the exemption; but acknowledging that the exemption may be available to paralegals who possess advanced specialized degrees in other professional fields and apply advanced knowledge in that field in the performance of their duties.) See also 29 C.F.R. § 541.301(e)(7).

h. Teachers/substitute teachers: (See Wage & Hour Op. Letter, FLSA2008-7, 2008 WL 4906281 (Sept. 26, 2008), explaining that teachers may qualify for the Professional exemption if their primary duty is imparting knowledge in an educational establishment, regardless of whether or not they possess and advanced academic degree, since there is no minimum educational requirement for bona fide teaching professionals in such institutions.)

i. Lawyers, doctors and engineers: (See generally Wage & Hour Op. Letter, FLSA2005-54, 2005 WL 3638473 (Dec. 16, 2005) (stating that “the learned Professional exemption is available for lawyers, doctors and engineers . . . .”. Lawyers must hold a valid license and be “actually engaged in the practice” of law. See 29 C.F.R. § 541.301(e) and 304 (2011).

6. Salary Basis Exception

a. The Professional exemption regulations create an exception to the salary basis method of payment for an employee who “is the holder of a valid license or certificate permitting the practice of law or medicine or any of their branches and is actually engaged in the practice thereof.”

b. “The term ‘physicians’ includes medical doctors including general practitioners and specialists, osteopathic physicians (doctors of osteopathy), podiatrists, dentists (doctors of dental medicine), and optometrists (doctors of optometry or bachelors of science in optometry).” This exception “does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dieticians, social workers, psychologists, psychometrists, or other professions which service the medical profession.”

29 C.F.R. § 541.304 (2011); 29 C.F.R. § 541.600(e) (2011).


C. Creative Professionals

1. To be included in this exemption under § 541.302, the “employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor” (including music, writing, acting, and the graphic arts).

2. This exemption does not apply to employees performing routine mental, manual, mechanical or physical work or work that can be produced by a person with general manual or intellectual ability and training. 29 C.F.R. § 541.302(a)-(c) (2011).

3. Work requiring invention, imagination, originality or talent

a. Requirement of “invention, imagination, originality or talent” distinguishes the creative professions from work depending primarily on intelligence, diligence and accuracy.

b. This requirement is, generally, met by creative professionals such as actors, musicians, composers, conductors, soloists, painters who at most are given the subject of their painting, cartoonists who are told only the title or underlying concept of the cartoon and must rely on their own creative ability to express the concept, essayists, novelists, short-story writers, screenplay writers who choose their own subjects and hand in a finished piece of work, and people holding “the more responsible writing positions in advertising agencies.”

i. This exemption does not generally apply to copyists, animators, or photograph retouchers, as this work is not considered creative. 29 C.F.R. § 541.302(c).

c. Journalists and the Creative Professional exemption

i. Pursuant to 29 C.F.R. § 541.302(d), journalists may qualify as exempt professionals if “their primary duty is work requiring invention, imagination, originality, or talent”.

ii. In Wang v. Chinese Daily News Inc., 623 F.3d 743, 753 (9th Cir. 2010), the Ninth Circuit agreed with the lower court’s grant of summary judgment, finding that newspaper reporters were not exempt. The court examined the 2004 regulation analyzing journalist work, stating that “[t]he majority of journalists, who simply collect and organize information that is already public, or do not contribute a unique or creative interpretation or analysis to a news product, are not likely to be exempt. Thus, for example, newspaper reporters who merely rewrite press releases or who write standard recounts of public information by gathering facts on routine community events are not exempt creative professionals.” Id. at 751. As such, the court acknowledged that as a matter of law, journalists may be exempt, although this is unlikely. Next, the court considered plaintiffs’


analytical contribution and creative interpretation. Finding the reporters worked at an intense pace and lacked control over their topics, such that plaintiffs’ primary duties did not involve conducting investigative interviews, analyzing and interpreting public events, writing editorial opinions or other commentary, the courts found these newspaper reporters non-exempt. Here, the employees’ primary duties consisted of “standard recounts of public information [created] by gathering facts on routine community events.” Id.

4. Recognized field of artistic or creative endeavor

a. This includes such fields as music, writing, acting, and graphic arts.

b. By expanding the exemption to include “creative” employees, it is possible that employees in the television, movie, and other media professions (such as producers, editors, directors) could be classified as exempt Professional employees.

VI. COMPUTER EMPLOYEES

A. Standard for Computer Employees

1. Computer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field are eligible for exemption as Professionals under section 13(a)(1) of the Act and under section 13(a)(17) of the Act (adopted by Congress as a statutory amendment in 1996). 29 U.S.C. §§ 213(a)(1), (17) (2004).

2. The § 13(a)(1) exemption applies to any computer employee paid at least $455 per week.

3. The § 13(a)(17) exemption applies to any computer employee paid at least $27.63 per hour.

4. Additionally, under either of these sections, the exemption applies only to computer employees whose primary duty consists of:

a. The application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications;

b. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs based on and related to user or system design specification;

c. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or


d. A combination of the above duties, the performance of which requires the same level of skill.

29 C.F.R. § 541.400 (2011).

B. Educational Requirements

1. Looking to the legislative history of the exemption, the court in Clarke v. JPMorgan Chase Bank, N.A., No. 08 CV 2400 (CM), 2010 U.S. Dist. LEXIS 33264 (S.D.N.Y. Mar. 26, 2010), observed that Congress expanded the Computer Professional exemption in 1996 by eliminating the educational requirement, as well as the requirements that the employee achieve a high level of proficiency and exercise independent judgment and discretion. Note, certain states have retained this latter requirement in their wage-hour laws.

2. Nonetheless, while it may not be required a court may consider formal education among other factors. For example, the court focused on plaintiff’s formal education to analyze her skill set in Verkuilen v. Media Bank, LLC, No. 10-3009, 2011 WL 2084074 (7th Cir. May 27, 2011). The Court mentioned that plaintiff’s position did not require any type of degree in the computer field. Id.

C. Computer Manufacture and Repair

1. The exemption for employees in computer-related occupations does not include those engaged in the manufacture or repair of computer hardware and related equipment.

2. Similarly, the exemption does not apply to employees whose work is highly dependent upon, or facilitated by, the use of computers or software, but who are not primarily engaged in computer systems analysis and programming or other similar occupations. 29 C.F.R. § 541.401 (2011).

D. Executive and Administrative Computer Employees

1. Computer employees within the scope of this exemption, as well as those outside its scope, may also have Executive and Administrative duties that qualify them for exemption.

a. Employees who work in many functional areas are exempt so long as their primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Thus, Network, LAN, and database analysts and developers, internet and network administrators, and other employees with similar duties are likely to satisfy the criteria under the Administrative exemption.

i. Notably, the use of manuals containing highly technical, scientific, or complex information will not necessarily defeat exemption. 29 C.F.R. § 541.704 (2011).


b. Systems analysts and computer programmers generally meet the duties requirements for the Administrative exemption provided their primary duties include “work such as planning, scheduling, and coordinating activities required to develop systems to solve complex business, scientific or engineering problems of the employer or the employer’s customers.” 29 C.F.R. §541.402 (2011).

c. Similarly, a senior or lead programmer who manages the work of two or more other programmers and whose recommendations as to the hiring, firing, advancement, promotion or other change of status of the other programmers are given particular weight, may satisfy the requirements for the Executive exemption. 29 C.F.R. § 541.402 (2011).

E. Highly Compensated Test Does Not Apply To Computer Professionals

1. The DOL has made it clear that the “highly compensated” test does not apply to Computer Professionals; however, it is possible that the test would apply to those employees in computer-related occupations who qualify for exemption, separately, under the Administrative or Executive exemptions, rather than the Computer Professional exemption. 69 Fed. Reg. 22,122 at 22,160 and 22176 (Apr. 23, 2004).

F. Information Technology (IT) Support Specialists Are Non-Exempt

1. The Department of Labor stated in an Opinion Letter, dated October 2006, that IT Support Specialists are not exempt under the Computer employee exemption.

2. First, IT Support Specialists’ responsibilities consist of installing, configuring, testing, and troubleshooting computer applications, networks, and hardware and not the “application of system analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications.” 29 C.F.R. § 541.400(b)(1) (2011). Second, their “primary duties” do not include “[t]he design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.” 29 C.F.R. § 541.400(b)(2). Third, the “primary duties” do not require the creation or modification of computer programs or any of the other requirements set out by 29 C.F.R. §§ 541.400(b)(1)-(4). Consequently, the Department of Labor determined that these IT Support Specialists are not covered under the Computer employee exemption.

VII. OUTSIDE SALES EMPLOYEES

A. Standard for Outside Sales Employee Exemption

1. An exempt employee is one whose primary duty is: (a) making sales within the meaning of 3(k) of the Act; or (b) obtaining orders or contracts for services or for


the use of facilities for which a consideration will be paid by the client or customer; and

2. Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.

3. Salary requirements do not apply to Outside Sales employees and, therefore, they are excluded, from the Highly Compensated Employee exemption. 29 C.F.R. §§ 541.500(a), (c) and 3541.601(a) (2011).

B. Primary Duty of Outside Salespersons

1. Work performed incidental to and in conjunction with the employee’s own Outside Sales or solicitations, including incidental deliveries and collections, constitute Outside Sales work.

2. Work that furthers the employee’s sales efforts is exempt work. Examples include writing sales reports, updating or revising the employee’s sales or display catalogue, and planning itineraries and attending sales conferences. 29 C.F.R. § 541.500(b).

C. Making Sales or Obtaining Orders

1. “Sales” within the meaning of 3(k) of the Act includes transfer of title to tangible property, and sometimes transfer of tangible and valuable evidences of intangible property, any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.

2. “Obtaining orders” for the use of facilities includes selling time on television or radio, soliciting advertising for newspapers and other periodicals, and soliciting freight for railroads and other transportation agencies.

3. “Services” includes selling or taking orders for a service, which may be performed by someone other than the person taking the order. 29 C.F.R. § 541.501(b) (2011).

D. Away From The Employer’s Place of Business

1. Outside Sales employees make sales at the customer’s place of business or home (if selling door-to-door). Sales made by mail, telephone or the Internet do not constitute Outside Sales unless that contact is adjunct to in-person calls. 29 C.F.R. § 541.502 (2011).

a. Fixed sites used by a salesperson as headquarters or for telephone solicitations is considered one of the employer’s places of business, even if the employer does not own or lease the property. 29 C.F.R. § 541.502.


i. Employees who worked at employer’s “licensed” satellite/branch locations did not sustain their burden of proving the applicability of the Outside Sales exemption. Speert v. Proficio Mortg. Ventures, LLC, No. JKB-10-718, 2011 WL 2417133, at *6 (D. Md. June 11, 2011) (citing the language of 29 C.F.R. § 541.5028 and finding that “[g]iven that language, it matters not whether Plaintiffs worked in Proficio’s ‘licensed’ location or in another location. Defendants have not sustained their burden of proving by clear and convincing evidence the applicability of the ‘Outside Sales’ exemption to Plaintiffs.”)

b. The following are not considered the employer’s place of business, and therefore will not cause an employer to lose the exemption: (i) hotel rooms used to display samples “for the purpose of promoting or making sales in a room not owned by the employer”; (ii) trade shows of short duration (less than two weeks), provided that selling, and not simply sales promotion, actually occurs at the shows. 69 Fed. Reg. 22,122 at 22,162 (Apr. 23, 2004).

2. Exemption found where workers were sent to retail stores to sell novelty items at special store events. Wage & Hour Op. Letter, FLSA2008-6NA, (May 8, 2008), available at http://www.dol.gov/whd/opinion/FLSANA/2008/2008_05_08_06NA_FLSA.htm.

E. Promotion Work

1. Promotional work is exempt Outside Sales work if it is “performed incidental to and in conjunction with an employee’s own Outside Sales or solicitations . . . .” Id. Promotional work that is incidental to sales made by another employee is not exempt work. 29 C.F.R. § 541.503 (2011).

a. For example, a manufacturer’s representative whose primary duty is making sales or contracts would still be considered exempt if s/he performed promotional work in furtherance of his/her sales, such as removing damaged or spoiled merchandise from a customer’s shelves, rearranging the merchandise, or setting up displays and posters. 29 C.F.R. § 541.503(b); see also Ackerman v. Coca-Cola Enters., Inc., 179 F.3d 1260, 1266-67 (10th Cir. 1999) (account managers who restocked shelves and set up product displays in conjunction with sales consummated at stores they visited were exempt Outside Sales employees).

b. In contrast, an employee who visits stores and arranges merchandise on shelves, replenishes stock, sets up displays, and discusses low inventory with the store manager, but fails to obtain a commitment for additional purchases, will not be performing exempt Outside Sales work.

8 The opinion cites to the following section of 29 C.F.R. §541.502 (2011): “[A]ny fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer's places of business, even though the employer is not in any formal sense the owner or tenant of the property.”


2. The DOL expressly stated in the Preamble that technological advances, such as the Internet, will not preclude exemption for employees who obtain a commitment to buy from the customer. “Exempt status should not depend on whether it is the sales employee or the customer who types the order into a computer system and hits the return button.” 69 Fed. Reg. 22,122 at 22,163 (Apr. 23, 2004).

3. Civilians working as military recruiters do not qualify for the Outside Sales exemption since they are responsible only for finding prospective recruits, and do not have authority to sign them up for military service. Clements v. Serco Inc., 530 F.3d 1224 (10th Cir. 2008).

F. Drivers Who Deliver and Sell Products

1. If a driver who delivers and sells products has a primary duty of making sales, the driver may qualify as exempt. Work incidental to the driver’s own sales or solicitations, such as loading, driving or delivering products, will be considered exempt Outside Sales work. 29 C.F.R. § 541.504(a) (2011).

G. Recent Litigation: Pharmaceutical Sales Representatives

1. The issue of whether a pharmaceutical sales representative will fall within the Outside Sales exemption has been the source of much recent litigation.

2. Where the primary duty of such a representative is the performance of non-manual work directly related to general business operations such as advertising, marketing, promoting sales, etc., the exemption may apply. See Jackson v. Alpharma, Inc., No. 07-3250, 2010 WL 2869530 (D.N.J. July 19, 2010).

a. Some sales representatives may be given enough authority to self-manage so as to be exempt. For example, in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010), a pharmaceutical sales representative whose duties involved maximizing sales sought overtime although she received a bonus based upon the total number of prescriptions that were written in her territory. The Court found that plaintiff had discretion and independent judgment, since she was required to use a high level of planning and foresight to maximize sales, operated unsupervised 95 percent of the time, and was given her own budget. In affirming the district court’s decision with respect to the Administrative exemption, the Court stated it would not question the applicability of the Outside Sales exemption. Id. at 286.

3. However, sales representatives that are more akin to marketers and promoters than actual sales persons will not qualify as exempt. See Jirak v. Abbott Labs Inc., 716 F. Supp. 2d 740 (N.D. Ill. 2010).

a. Pharmaceutical sales representatives who deliver “samples” to physicians may not be making “sales”, since these employees cannot lawfully transfer drug ownership in exchange for anything of value, take an order for the purchase of drugs or obtain a physician’s binding commitment to prescribe drugs. See In


re Novartis Wage and Hour Litig., 611 F.3d 141 (2d Cir. 2010), cert. denied, 131 S. Ct. 1568 (2011); Kuzinski v. Schering Corp., 604 F. Supp. 2d 385 (D. Conn. 2009), aff’d, 384 F. App’x 17 (2d Cir. 2010), cert. denied, 131 S. Ct. 1568 (2011) (denying certiorari to Circuit Court decision holding that pharmaceutical representatives did not satisfy the Outside Sales exemption because they did not actually make sales or obtain orders or contracts to sell pharmaceuticals; the sales were made by the pharmaceutical company to wholesalers and other retailers, rather than to the physicians whom the representatives contacted). See also Palacios v. Boehringer Ingelheim Pharms., Inc., No. 10-22398-Civ.-UU, 2011 U.S. Dist. LEXIS 77804 (S.D. Fla. July 12, 2011) (in granting summary judgment to plaintiff, the court rejected the employer’s contention that the plaintiff was subject to the Outside Sales exemption, reasoning, none of the work that plaintiff performed involved the transfer of title to tangible property.)

b. Compare Christopher v. SmithKline Beecham, 635 F.3d 383, 397 (9th Cir. 2011). In reviewing the term “sales” within the Outside Sales exemption, the Ninth Circuit held that it owed "no deference to the Secretary's current interpretation of the regulations" [e.g., that pharma sales reps cannot sell and, therefore, cannot satisfy the primary duties test for Outside Sales exemption] because the regulations themselves do nothing more than repeat the terms of the FLSA. "Furthermore ... [the Court held that] deference is not warranted because the Secretary's position is both plainly erroneous and inconsistent with her own regulations and practices …”

i. In interpreting the term “sales,” plaintiffs argued that they could not transfer any product to physicians, and thus could not “sell”. Defendant Glaxo urged the court to adopt a broader reading of the exemption, specifically one that reads the phrase “other disposition” in Section 3(k)’s definition of “sale” as a broad, catch-all category. Id. The court noted that general promotion of defendant’s products and educating physicians on drug development are merely preliminary steps to an end goal of obtaining a doctor’s commitment to prescribe more of a particular drug. “Without this commitment and the concomitant increase in prescriptions, or drug volume, or market share—i.e. without more sales –the [representative] would not receive his or her commission salary and could soon find himself or herself unemployed.” Id. at 398. Further, the court noted, while not all of a representative’s duties constituted “selling”, this did not render the totality of those activities non-exempt, but rather amount to activities incidental to and in conjunction with the their outside sales work. Id.

H. Registered Representatives

1. In Gold v. New York Life Insurance, No. 09 Civ. 3210 (WHP), 2011 WL 2421281 (S.D.N.Y. May 19, 2011) the Southern District of New York found the plaintiff, an insurance agent, within the Outside Sales exemption. The plaintiff argued that


his primary duty was not sales, but rather providing financial advice. However, the court disagreed and found that any advisory function was merely incidental to Gold’s primary duty of sales. In analyzing Gold’s role, the court found that his primary duty was to sell insurance, which formed the crux of the defendant’s business. The court examined plaintiff’s workday, which included solicitation of new business, presentation of available products to prospects, and obtainment of a commitment to purchase. In light of these activities, the court found that Gold’s financial advice was “merely incidental to consummating the deal”. Id. at 8.

VIII. EXCEPTION FOR PUBLIC SAFETY EMPLOYEES

1. “White Collar” exemptions do not apply to: police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level. 29 C.F.R. § 541.3(b)(1) (2011).

2. All these employees remain overtime-eligible so long as they perform work such as: preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work. 29 C.F.R. § 541.3(b)(1).

3. This carve out does not mean that all police officers or fire fighters are overtime-eligible. Some high-level police and fire officials may be exempt Executive or Administrative employees, in limited situations, as follows:

a. Must satisfy pertinent requirements of the applicable exemption (such as directing the work of two or more employees as required for the Executive exemption); and

b. Have as their primary duty the performance of managerial tasks more in line with administering the affairs of the department or general business operations, as opposed to investigation. 69 Fed. Reg. 22,122 at 22,130 (Apr. 23, 2004).

c. Jailers, despite lacking the power to arrest, are security personnel in correctional facilities and therefore qualify for the partial overtime exemption under section 7(k). Wage & Hour Op. Letter, FLSA2008-9NA (May 30, 2008), available at http://www.dol.gov/whd/opinion/FLSANA/2008/2008_05_30_09NA_FLSA.pdf.


IX. RETAIL SERVICES/COMMISSIONED EMPLOYEE EXEMPTION

A. Standard for Retail/Commissioned Employees

1. An exempt employee is one: (a) who is employed by a retail or service establishment; and (b) whose regular rate of pay exceeds one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked; (c) who earns more than half of his/her total earnings in a representative period in commissions. The representative period for determining if enough commissions have been paid may be as short as one month, but must not be greater than one year. The employer must select a representative period in order to determine if this condition has been met. 29 U.S.C. §207(i) (2010).

B. Retail and service establishments

1. While the FLSA itself does not define the term “retail or service establishment”, the courts and DOL have retained the definition found in the now repealed section 13(a)(2) of the act. See English v. Ecolab, Inc., No. 06 Civ. 5672(PAC), 2008 WL 878456 (S.D. N.Y. Mar. 31, 2008). Before its repeal, this section exempted employees of “retail or service establishment[s]” from its minimum wage and overtime requirements. As such, a retail or service establishment is an establishment, 75 percent of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry. See also Reich v. Delcorp, Inc., 3 F.3d 1181 (8th Cir. 1993) (Eighth Circuit affirming the district court’s holding that the repeal of Section 13(a)(2) did not repeal the administrative and judicial construction of the retail or service establishment exemption as it appears in Section 7(i).)

2. The interpretive regulations provide additional guidance on the issue of what qualifies as a retail or service establishment. 29 C.F.R. §§779.316 – 779.321 (2011). Most importantly, the regulations state that the term “does not encompass … industries lacking a ‘retail concept.’” 29 C.F.R. § 779.316. However, they also provide a partial list of establishments which lack this “retail concept.” Included in this list are insurance companies, electric power companies selling electrical energy to private consumers, telephone answering service companies, etc.

3. In a 2006 Opinion Letter, the Department of Labor addressed the applicability of the exemption to employees of plumbing franchises who provide plumbing repair services and sell plumbing-related products to residential and commercial customers. At issue was whether the plumbing franchises provided services with the requisite “retail” concept. The Department noted that unlike plumbing contractors, which lack a retail concept, “companies that provide general repair services for the public (such as auto repair shops, household refrigerator repair


shops, and clock repair shops) can qualify as retail or service establishments.” According to the Department, “[s]uch repair services may qualify under section 7(i) even when they are sometimes performed for a commercial user rather than a homeowner, so long as the commercial repair services do not require the use of specialized facilities or equipment and the services are not different services than those provided for the general consuming public.” Wage & Hour Op. Letter, FLSA2006-12NA, 2006 WL 4512954 (June 23, 2006).

C. Commissioned Employees

1. The regulations at 29 C.F.R. §779.413 (2011) detail various methods of compensation that are typically observed in a retail or service establishment: (1) straight salary or hourly rate, (2) salary plus commission, (3) quota bonus, (4) straight commission without “advances” or “draws,” and (5) straight commission with “advances” or “draws.”

2. The requirement of Section 7(i)—that more than half of an employee’s compensation represent commissions “on goods and services”—includes “all types of commissions customarily based on the goods or services which the establishment sells, and not exclusively those measured by ‘sales’ of these goods or services.” 29 C.F.R. §779.413(b) (2011).

3. “The essence of a commission is that it bases compensation on sales, for example a percentage of the sales price . . . .” English v. Ecolab, Inc., No. 06 Civ. 5672(PAC), 2008 WL 878456, at *4 (S.D.N.Y. Mar. 31, 2008) (quoting Yi v. Sterling Collision Ctrs., Inc., 480 F.3d 505, 508 (7th Cir. 2007)).

4. With respect to defining commissions, the regulations provide that a determination as to whether or to what extent periodic payments (i.e., draws or advances) can be considered to represent commissions must be made on a case-by-case basis.

5. In an Opinion Letter issued on November 14, 2005, the Administrator provided guidance on how the DOL evaluates payment plans. It states that “[a] commission rate is not bona fide if the formula for computing the commissions is such that the employee, in fact, always or almost always earns the same fixed amount of compensation for each workweek (as would be the case where the computed commissions seldom or never equal or exceed the amount of the draw or the guarantee).” Wage & Hour Op. Letter, FLSA2005-53, 2005 WL 3308624 (Nov. 14, 2005).

6. Commissions:

a. In contrast, in Wilks v. Pep Boys, 278 F. App’x 488 (6th Cir. 2008), the court determined that the defendant auto repair shop’s “flat rate” system of paying its mechanics did not qualify as a § 7(i) commission plan. Plaintiff, a flat-rate mechanic, demanded overtime from his employer, who argued that its mechanics were “commissioned” employees, and thus qualified for the retail


exemption. The court proceeded to examine Pep Boys’ complex payment scheme, which took into account not only productivity, but also actual labor hours. The court concluded that this was not a commission scheme since it failed to “establish some proportionality between the compensation to the employees and the amount charged the customer.” Id. at 489. “[W]ages paid to flat-rate employees must be at least somewhat proportional to the charges passed on to customers” in order to qualify as commissions. Id.

b. In Parker v. NutriSystem, Inc., 620 F.3d 274 (3d Cir. 2010), the Third Circuit affirmed a district court’s grant of summary judgment on behalf of the employer NutriSystem, holding that its call center sales associates who sell the company’s weight loss programs were exempt within the meaning of the retail services exemption. The central dispute was whether defendant’s method of compensating its associates represented “commissions on goods or services”, which turned on whether the “earnings result [ ] from the application of a bona fide commission rate.” Id. at 277.

i. Under NutriSystem’s compensation plan, its sales associates are paid a flat payment that is determined by the time of the sale and kind of sale, but does not fluctuate based on the price paid by the customer. According to the plaintiffs, this compensation plan was not a commission because it did not tie their payments directly to the revenue generated per sale. NutriSystem, in turn, argued that commissions did not have to be a strict percentage of the revenue generated from the sale to be a commission plan, provided that the commissions were proportional and de-linked from the number of hours a sales associate worked.

ii. The Third Circuit found in favor of NutriSystem and affirmed, holding that the compensation plan was a bona fide commission pursuant to Section 7(i). The Court found that the flat-rate payments were proportional to the revenue generated by a sale because they fluctuated only slightly for legitimate business purposes, such as changes to the weight loss programs’ costs based on customers’ dietary needs or sales promotions. The Third Circuit noted that it was illogical and unnecessary to strictly link a sales associate’s pay with the price paid by a customer because NutriSystem should be able to offer its customers discounts or allow for minor differences in prices of its various programs. The Third Circuit further noted that the compensation plan was a commission because the sales associates did not have to work long hours to generate high commissions. The salespersons could be just as successful in selling programs to customers in eight hours as they could be in twelve hours. Finally, the Court held that NutriSystem’s compensation plan was consistent with the purpose of the FLSA in that the sales associates were well compensated and were unlikely to have increased health risks due to hours worked. In reaching its decision, the Third Circuit relied on the limited case law in this area and noted that the DOL’s regulations did not define the term “commission.”


X. OTHER EXEMPTIONS

A. Lesser Known Exemptions

In addition to the white collar exemptions, the FLSA provides a host of other, less frequently litigated, exemptions from its minimum wage and overtime pay requirements. Below are some of these lesser known exemptions.

1. Rail Carrier Operators - Section 13(b)(2) applies to employees of railroads, express companies and oil pipeline companies subject to the Interstate Commerce Act (49 U.S.C. §10101 et seq.). This exemption is also available to employees of water carriers involved in the transport of passengers or property partly by rail and partly by water. 29 U.S.C. § 213(b)(2) (2004).

2. Air Carrier Employees - Section 13(b)(3) exempts those employees of air carriers subject to certain provisions of the Railway Labor Act. (45 U.S.C. §181 et seq.) However, the exemption is not available to an airline’s airport and flight personnel, if such personnel devote more than 20 percent of their time to activities unrelated to transportation activities. 29 U.S.C. § 213(b)(3).

3. Poultry and Dairy Buyers - Employees who are outside buyers of poultry, eggs, cream or milk in their raw or natural state are exempt under § 13(b)(5). “Outside buyer” includes only an employee who is engaged in buying or contracting to buy, and who is regularly performing this function away from his/her employer’s place of business. This does not include buyers who are located and perform their work in fixed establishments, (i.e. buying stations), located in the country or small rural communities away from the main plant where the goods are processed. 29 U.S.C. § 213(b)(5).

4. Seamen on American Vessels - Section 13(b)(6) covers seamen on American vessels. Notably, this provision exempts such employees from only the overtime requirements of the FLSA- not the minimum wage requirements. Pursuant to the DOL’s regulations, an “American vessel” is one that is documented or numbered under federal law, 29 C.F.R. § 783.38. “Hours worked” include “all hours during such period when he was actually on duty (including periods aboard ship when the employee was on watch or was, at the direction of a superior officer, performing work or standing by, but not including off-duty periods which are provided pursuant to the employment agreement). 29 U.S.C. § 206(a)(3) (2007).

5. Small Market Media Employees - Employees of local newspapers, switchboard operators at small public phone companies, and announcers, news editors or chief engineers employed by radio or television stations in small communities. 29 C.F.R. §§ 786.100, 786.250, 793.3 (2011).

6. Local Delivery Drivers - Drivers and driver’s helpers making local deliveries may qualify for this exemption if they are compensated on the basis of trip rates.


They may also be compensated via some other delivery payment plan, if the U.S. Secretary of Labor finds that such plan has the general purpose and effect of reducing hours worked by such employees to, or below 40 hours per week. 29 U.S.C. § 213(b)(11).

7. Agricultural Workers - This exemption, codified at 29 U.S.C. § 213(b)(12), applies to those agricultural workers who are not covered by the FLSA’s more complete exemption for farm workers. This exemption applies to employees employed in farming, in both a primary and secondary sense. Pacheo v. Whiting Farms, Inc., 365 F.3d 1199, 1203 (10th Cir. 2004) (citing Bayside Enter., Inc. v. NLRB, 429 U.S. 298 (1977)). Specifically, it exempts those employed in connection with the operation of maintenance of ditches, canals, reservoirs or waterways, not owned or operated for profit, or operated on a sharecrop basis, and that are used exclusively for supply and storing of water, at least 90 percent of which were ultimately delivered for agricultural purposes during the preceding calendar year.

8. Small Department Police and Firefighters - Section 13(b)(20) exempts any employee of a public agency who in any workweek is employed in fire protection activities or any employee of a public agency who in any workweek is employed in law enforcement activities (including security personnel in correctional institutions). This exemption is limited to employees of those public agencies that employ fewer than five employees in fire protection or law enforcement activities during the workweek.

9. Live in Domestics and Companionship Exemptions - The live-in domestics exemption applies to those employed in domestic service in a household and who reside in such household. Such employees are not exempt from the FLSA’s minimum wage requirements. The number of hours worked may exclude, by agreement between the employee and employer, the amount of sleeping time, meal time or other periods of complete freedom from all duties, such as those during which the employee may leave the premises. 29 C.F.R. § 552.102(a) (2011). To be excluded, such periods must be of sufficient duration to enable the employee to effectively use such time.

a. A separate exemption exists for those employed in domestic service employment to provide companionship services for individuals, who, because of age or infirmity, are unable to care for themselves. “Companionship services” are defined as provision of care, fellowship, and protection to people who cannot care for themselves due either to advanced age or to physical or mental difficulties. General household work is also included, as long as it does not exceed 20 percent of the total weekly hours worked by the companion. Where this 20 percent limitation is exceeded, the employee must be paid overtime as required. 29 C.F.R. § 552.6 (2011).

b. Applicability to home health aides employed by third party agencies


i. The issue in Long Island Care at Home v. Coke, 549 U.S. 1320 (2007) was whether the “companionship services” exemption can be used by a third party home health agency to avoid paying the agency's home care attendants minimum wage and overtime pay.

ii. The trouble stemmed from the fact that the regulations, which specifically apply to “companionship services” provided by other than family members of those receiving the services, appeared to be internally inconsistent. Plaintiff argued that Congress could not have intended the provision to apply to third-party employees because the home care industry did not even exist at the time the regulations were promulgated. The Second Circuit agreed and concluded that the companionship exception was intended only to be used by families who directly hire home health aids, and did not extend to home health aids employed by third parties, such as home care agencies. The court reasoned that the purpose of the regulation was to exempt companions- not individuals employed to assist with housekeeping and/or daily living. Coke v. Long Island Care at Home, Ltd., 462 F.3d 48 (2d Cir. 2006).

iii. The Supreme Court granted certiorari and reversed in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007). The Court reconciled conflicting federal regulations, holding that an employee who provides companion services, but who works for a third party agency, is not automatically disqualified from this exemption. As such, a home attendant companion, employed by a third party agency, who provides companion services to an individual living in his/her own home still qualifies for the companionship exemption so long as this worker does not spend more than 20% of his/her time doing general household work.

10. House Parents - Section 13(b)(24) exempts those employed with his/her spouse by a nonprofit educational institution to serve as the parents of children who are either orphans, or who are enrolled in such institution and reside in residential facilities of the institution. This exemption applies only where a) such children reside at such institution, b) such employee and his/her spouse reside in such facilities and receive, without cost, board and lodging from such institution, and c) are together compensated, on a cash basis, at a rate of $10,000 annually. 29 C.F.R. § 213(b)(24).

11. Small Forestry or Logging Operation Employees - Section 13(b)(28) This exemption applies to those employed in planting or tending trees, cruising, surveying or felling timer, or in preparing or transporting logs or other forestry products to the mill, processing plant, railroad or other transportation terminal. The number of employees employed by this employee’s employer may not exceed eight. 29 C.F.R. § 213(b)(28).

12. Employees of National Parks - Section 13(b)(29) exempts those employed in an amusement or recreational establishment located in a national park or national


forest or on land in the National Wildlife Refuse System. Such employee must be an employee of a private entity engaged in providing services or facilities in one of the establishments above, under a contract with the U.S. Secretary of the Interior or the Secretary of Agriculture. This employee must also receive compensation for employment in excess of 56 hours in any workweek, at a rate of not less than one and one-half times that employee’s regular rate. 29 C.F.R. § 213(b)(29).

13. Motor Carrier Exemption - This exemption applies to employees who are employed by a motor carrier or motor private carrier. It also applies to drivers, driver’s helpers, loaders or mechanics whose duties affect the safety of operation of motor vehicles in transportation on public highways in interstate or foreign commerce. Employees who are covered by the small vehicle exception will not fall within the scope of this exemption. 29 C.F.R. § 782.2 (2011).

XI. THE SALARY BASIS TEST

A. Generally

1. The salary basis test is a long-standing component of the FLSA test for exempt status, and requires that the employee be paid a predetermined and fixed salary, not subject to reduction because of variations in the quality or quantity of work performed. 29 C.F.R. § 541.602 (2010).

a. Bi-weekly earnings that fluctuate may deprive the employee of the ability to claim that he was paid a salary. Prakash v. Savi Techs., Inc., No. C10-1845RSL, 2011 WL 2414349 (W.D. Wash. June 10, 2011) (holding that employee’s whose bi-weekly earnings fluctuated between $2,000 and $8,000 was not paid a guaranteed “salary” since his compensation was subject to change.)

b. Deducting a cash loss from an exempt employee’s salary destroys the salary basis of pay required for exempt status, since such a deduction would be based upon the “quality” of the employee’s work. Wage & Hour Op. Letter, FLSA2006-7, 2006 WL 940663 (Mar. 10, 2006).

c. This minimum salary requirement may not be prorated to reflect the part-time status of an employee. A part time employee must thus earn at least $23,000 per year or $455 per week in order to qualify for the exemption. Wage & Hour Op. Letter, FLSA2008-1NA, 2008 WL 1847289 (Feb. 14, 2008).

d. Payment of Administrative or Professional employees on a fee basis is permissible. 29 C.F.R § 541.605 (2011).

2. In general, an employee must be paid his/her full salary for any week in which the employee performs work, irrespective of the number of hours or days worked. Partial-day or partial-week deductions from an employee’s pay generally do not satisfy the salary basis test and will render an employee non-exempt, and,


accordingly, overtime eligible. At the same time, however, because exempt employees need not be paid in any workweeks in which they perform no work, full-week deductions from pay are presumptively valid. See Auer v. Robbins, 519 U.S. 452, 459-60 (1997); 29 C.F.R. § 541.602(a) (2011).

B. Permissible Deductions

1. The FLSA regulations list several recognized exceptions under which an employer may make deductions from pay in less than full-week increments without forfeiting its exempt classification of employees. These exceptions allow docking:

a. For absences from work for a full day or more (in daily increments) for personal reasons, other than sickness or disability;

b. For absences of a full day or more (in daily increments) occasioned by sickness or disability, in accordance with a bona fide plan, policy or practice providing wage replacement benefits in the event of sickness or disability;

c. To offset jury or witness fees or military pay received by the employee;

d. For penalties imposed in good faith for infractions of “safety rules of major significance . . .[;]”

e. For hours not worked in the first or last weeks of employment; or

f. For hours taken as unpaid leave under the Family and Medical Leave Act (“FMLA”).

g. For “unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules.” 29 C.F.R. § 541.602(b)(5).

29 C.F.R. § 541.602(b)(1)-(4), (5), (6),(7).

C. Improper Deductions May Destroy Exempt Status

1. The FLSA exemption is lost where an employer makes improper deductions from salary.

2. A “window of correction,” has long provided that isolated or inadvertent deductions will not defeat the exemption, if the employee is reimbursed. See, e.g., Auer v. Robbins, 519 U.S. 452, 463 (1997) (employer may act to correct a single actual disciplinary deduction in pay to an otherwise exempt employee and thereby preserve that employee’s exempt status by “reimburs[ing] the employee ... and promis[ing] to comply in the future.” (internal quotations omitted)); Kennedy v. Commonwealth Edison Co., 410 F.3d 365, 372 (7th Cir. 2005) (allowing employer to invoke window of correction where “plaintiffs can identify


only three affected individuals among them, none of whom lost more than the equivalent of a few hours of pay. There was no pattern to the deductions and they occurred over the equivalent of 470,000 work weeks”); Messmer v. Colors in Bloom, Inc., 67 F. App’x 719, at *2 (3d Cir. 2003) (employer allowed to reimburse employee for improper deduction and employee must remain exempt); Moore v. Hannon Food Serv., 317 F.3d 489, 493 (5th Cir. 2003) (Circuit Court reversed ruling of district court and allowed employer to avoid liability by reimbursing the improper deductions); Childers v. City of Eugene, 120 F.3d 944 (9th Cir. 1997); Carpenter v. City & County of Denver, 115 F.3d 765 (10th Cir. 1997) (two one-time impermissible deductions could be remedied under window of correction); Davis v. City of Hollywood, 120 F.3d 1178 (11th Cir. 1997) (six instances of possibly improper deductions could be corrected). Hoffmann v. Sbarro, Inc., 982 F. Supp. 249 (S.D.N.Y. 1997) (window of correction unavailable when employer has “settled policy” of impermissibly deducting cash shortages from restaurant managers’ pay); Belcher v. Shoney’s Inc., 30 F. Supp. 2d 1010 (M.D. Tenn. 1998); Kelly v. City of New York, No. 91 Civ. 7343, 2001 U.S. Dist. LEXIS 16596 (S.D.N.Y. Sept. 24, 2001), aff’d sub. nom. Abramo v. City of N.Y., 54 F. App’x 708 (2d Cir. 2002).

3. If, on the other hand, the employer has an “actual practice” of making improper deductions, the exemption will be lost. Factors to be considered in determining whether an “actual practice” exists include: (a) the number of improper deductions made, particularly as compared to the number of employee infractions warranting discipline; (b) the time period over which the improper deductions were made; (c) the number and geographic location of affected employees; (d) the number and geographic location of managers responsible for the improper deductions; and (e) whether the employer has a clearly communicated policy allowing or disallowing such improper deductions. 29 C.F.R. § 541.603 (2011).

4. In the event an actual practice of improper deductions is found, the exemption will be lost during the time period in which the improper deductions were made for employees in the same job classification working for the same manager.

a. Balancing the interests and concerns of the various commenters, the DOL concluded that it was best to adhere to the “actual practice” standard, and then deny the exemption to all employees working for the same manager in the relevant time period (irrespective whether individual employees in that group actually experienced an improper deduction). In Baden-Winterwood v. Life Time Fitness, Inc., No. 2:06-cv-99, 2010 WL 1882261 (S.D. Ohio May 11, 2010), employer’s pay plan allowed a group of employees treated as exempt to receive bonuses over and above their base salary for good performance. However, if their year-to-date performance subsequently dropped below certain levels, their regular base salary could be reduced as the company reclaimed some of the previously paid bonuses. The Court held that the recoupment of bonuses was an illegal deduction and that exemption was lost during the time period the improper deductions occurred for employees in the


same job classification working for the same managers. See 29 C.F.R. § 541.603.

D. “Safe Harbor” Provision

1. The 2004 regulations also created a new “safe harbor” to mitigate the risk that improper deductions from pay (whether for lack of work or any other reason) will destroy the FLSA exemption. 29 C.F.R. § 541.603(d).

2. Under this provision, the exemption is not lost provided the employer: (a) has a clearly communicated policy (preferably one in writing, distributed to all employees) that prohibits improper pay deductions; (b) reimburses employees for any improper deductions and makes a good faith commitment toward future compliance; and (c) does not “willfully” violate the policy by continuing to make improper deductions after receiving employee complaints. 29 C.F.R. § 541.603(d).

3. The safe harbor thus operates in a manner analogous to the Faragher/Ellerth defense to sexual harassment claims – if an employer has a clear, widely-distributed policy regarding pay deductions that is consistent with the FLSA, the unauthorized, improper conduct of a supervisor or manager with respect to docking employee pay (even if such improper docking is more than an isolated or inadvertent occurrence) will not necessarily defeat the FLSA exemption, provided the employer makes the affected employee(s) whole after it learns of the improper docking, and takes other corrective steps to prevent a recurrence.

E. Additional Payments Remain Permissible

1. Payment of additional compensation to an employee, either in the form of a minimum guarantee plus an incentive enhancement, or of a minimum guarantee plus additional compensation based on hours worked, will not destroy the exemption. 29 C.F.R. § 541.604(a) (2011).

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